Valid “Satisfaction Note” as required u/s 158BD requires proper recording of evidences for being satisfied

Brief Facts of the case-

♠ The subject appeals are filed on similar grounds and accordingly have been discharged by a single order.

♠ The present appeal has been received on limited remit by the Hon’ble Supreme Court which had by its judgment reported as CIT V. Calcutta Knitwear (2014) 362 ITR 673 (SC) directed examination of the limited question as to whether opinion formation, in terms of Section 158BB of the Income Tax Act, and the time within which it had to be recorded was complied with.

♠ A search was conducted on 3.8.2000 in the premises of Sh. Manoj Aggarwal. This led to the seizure of various documents and other materials; even the statement was recorded under Section 132 of the Income Tax Act.

♠ The present assessees were issued with a notice on 22.03.2004 by his assessing officer. It was alleged by the revenue that the notice was on account of opinion formation in terms of Section 158BB of Sh. Manoj Aggarwal’s assessing officer.

The relevant extract of the letter sent by the assessing officer of Manoj Aggarwal was as follows:

“1) Various diaries have been seized from the possession of Sh. Manoj Aggarwal which establish that Radhey Shyam Bansal is a mediator for providing accommodation book entries by Sh. Manoj Aggarwal. The quantum of transaction done by him as per these documents is given in Annexure-A. Photocopies of these paper are enclosed in Annexure-B.

2) There are evidences of cash having been received by Mr. Manoj Aggarwal from Radhey Shyam Bansal.The summary of the amounts so received as per various seized documents is given in Annexure-C. The photocopies of these documents are provided as per Annexure-D.”

Question of fact and law

♠ Whether the communication/ satisfaction letter was issued within time specified?

♠ Whether the communication/ satisfaction letter can be regarded as “satisfaction” as required under Section 158BD?

Contention of the revenue

The satisfaction for initiating proceedings under Section 158BD was recorded by the AO making assessment in the case of Shri Manoj Aggarwal and M/s Friends Portfolio (P) Ltd. on 29th Aug., 2002 also i.e. on the date of passing assessment order dt. 29th Aug., 2002.

Contention of Assessee

The assessee contended that the note was antedated and is accordingly not valid. He tried to substantiate his argument by demonstrating the following:

• If the satisfaction note was recorded on 29th Aug., 2002 then there would have been no necessity to further record the satisfaction again on 26th Nov., 2002.
• He also pointed out that from the contents and language of the alleged satisfaction note dt. 29th Aug., 2002, it is evident that this note is subsequently prepared.
• He submitted that if the satisfaction was recorded on 29th Aug., 2002, the notice should also have been issued on that date itself or just thereafter.

Held by Respective Court

♠ No satisfaction note was prepared on 29th Aug., 2002 and that the note had been prepared even after 26th Nov., 2002. The Court relied on the following:

• Had the satisfaction been recorded on 29th Aug., 2002, there would have been no necessity to record another satisfaction on 26th Nov., 2002.
• Had the satisfaction note been recorded on 29th Aug., 2002 then the record pertaining to the other person not searched should have been transferred to the AO of the present assessee who was a different officer at that time than the officer of the searched person.
• The date below the signatures of the AO in the concerned note was not legible. The learned Departmental Representative confirmed the date to be 26th Nov., 2002.

♠ In view of the above, it is clear that on or before 29th Aug., 2002, the AO of M/s Friends Portfolio (P) Limited and that of Shri Manoj Aggarwal did not record any satisfaction. The note dt. 29th Aug., 2002 is, therefore, not to be taken for recording satisfaction required under Section 158BC/158BD.

♠ Further, the communication/ letter by the AO does not qualify as “satisfaction” as required under section 158BD as there was no material or evidence to satisfy the concept of requirement as engrafted under Section 158BD as no evidences were provided so as to prove that that cash was received by Manoj Aggarwal from the respondent assessees. The revenue has not discharged the onus that there was valid satisfaction as required under Section 158 BD. Therefore, the irresistible conclusion is the pre-requisite of “satisfaction” as engrafted under Section 158B for the purpose of initiation of block assessment proceeding is non-existent or absent.